Fiscal Treaty: Dead Duck or Great Hope?

From France and Holland to Slovakia and Greece, governments are falling victim to a European wide backlash against austerity. It seems no pro-austerity party is safe, with even Angela-Merkel’s Christian Democrats suffering a humiliating collapse in recent regional elections. Suddenly, it seems the debate in Europe is shifting away from austerity and towards a greater emphasis on boosting growth and creating jobs.

Even Enda Kenny has jumped on the bandwagon. Following the rejection of austerity parties in Greece and France, he had the audacity to try and claim credit for the shift: “I welcome the fact that president-elect Hollande has been talking about growth and investment which is what Ireland has been talking about along with a number of other leaders for the last number of months.” Indeed, as left-wing economist Michael Taft remarked, since the Referendum debate began, government ministers “have been talking so much stimulus you’d fear that the economy will explode with all that dosh the Government intends to pump in.”

The picture is similar in Europe. Since his election as President of France, Francois Hollande has argued that eurozone countries needed more economic growth, and not simply more austerity, to get through the crisis. He wants to see the Fiscal Treaty renegotiated to include a growth pact and now finds himself in the midst of a battle of words with the German Chancellor, Angela Merkel, who so far remains adamant that the Treaty is "not negotiable."The Financial Times’ associate editor, Wolfgang Munchau, went so far as to argue that Hollande’s election was the beginning of “progressive insurrection” that will challenge the Merkel consensus.

These tensions spilled over into the recent G8 summit. In a post- summit statement the best that could be agreed upon was some bland language about the need to “strengthen and reinvigorate” economies alongside a pointed qualifier “recognizing” that each country might pursue different policy paths, widely assumed to be included at the insistence of Merkel.

So what is behind all this sudden talk of growth in Ireland and Europe and is the Fiscal Treaty fast becoming a dead duck?

On the face of it, it is a recognition of the blindingly obvious; not only is austerity not working, it is fact exacerbating the crisis. Everywhere austerity has been introduced government deficits have actually increased. In a recent paper produced for the International Monetary Fund, economists looked at 173 episodes of fiscal austerity over the past 30 years. These were countries that, for one reason or another, cut social spending and/or raised taxes on ordinary people to shrink their budget deficits. The results? Austerity “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

There is also more than a whiff of panic coming from the European ruling elites as the popular backlash against austerity gathers force across Europe. “Governments have fallen, more are at risk and in some places, a stark streak of nationalism is on the rise that could swing Europe ever deeper into a fortress mentality”, shrieked one commentator, adding that only Malta, Austria, Luxemburg and Germany had not seen a change in government since the onset of the crisis.

However, while there is a genuine movement against austerity being led by the radical left across Europe, it would be premature to argue that the austerity agenda and the Fiscal Treaty are dead in the water just yet. Hollande may have called for a renegotiation of the treaty, however he has not opposed the unprecedented transfer of fiscal sovereignty to unelected institutions nor the effective removal of spending decisions from the realm of democratic decision-making that are the cornerstones of the Fiscal Treaty. Rather Hollande is looking for an “addition to the treaty to inject measures to boost growth”.

It is important to remember, as journalist Leigh Phillips has argued, that growth measures of a certain type often involve amplification of the austerity doctrine, not its antithesis. Consider, for example, recent statements made by the Swedish finance minister: “Growth-enhancing measures is not about stimulating demand. It is about releasing growth through structural reforms, particularly when it comes to regulatory barriers to entry in domestic service sectors.” In other words, privatisation of public services and labour market reform, this is what is understood within EU orthodoxy as the ‘growth’ complement to austerity.

In this context, it is more important than ever that the radical left, in Ireland and across Europe, continue the fight against austerity. In Ireland that involves building a broad campaign against the Treaty that links in with the growing struggle against services charges and cutbacks. However, it also must involving developing an alternative to the logic of capitalism. The radical left cannot simply critique the ideological assumptions of capitalism, but must include some alternative to the system. Simply reverting to some version of Keynesianism, as mainstream left critics of capitalism are prone to do, is not sufficient, most immediately because this approach fails to confront the fact that conflicting class interests are at play in the different economic strategies currently being advanced.